Cuba owes Sherritt $393 million

Posted on Friday, 10.31.08
Cuba owes Sherritt $393 million
BY WILFREDO CANCIO ISLA
El Nuevo Herald

Cuba owes Sherritt $393 million

The $392.8 million owed by the Cuban government to Sherritt
International could jeopardize petroleum drilling operations conducted
by the Canadian company in Cuba, as soon as next year.

According to the company's third trimester report (July-September) for
2008, pending accounts with the Cuban government represent an ''exposed
credit risk'' and compromise agreed plans for expanding operations in 2009.

Though the report acknowledges that the Cuban government has expressed
intentions to meet its financial obligations to the company ''despite
the negative impact of two hurricanes and the deplorable conditions of
the global economy,'' Sherritt executives warned that they will take a
closer look at future drilling projects with the island-nation.

According to the report, made public on Wednesday, the company expects
to establish a framework for payment and will restructure investments
before initiating drilling operations scheduled for 2009 in Cuba.

The Toronto-based company also indicated that it would hold off on plans
to build a refinery in Canada that was conceived as a partnership with
the Cuban government.

In July, Sherritt announced it would abandon plans to drill in the deep
waters of Cuba's so-called Economic Exclusion Zone in the Gulf of
Mexico, restructuring petroleum operations toward land-based operations.
Sherritt operates two rigs on land in conjunction with Canadian
oil-company Pebercan and has acquired an additional area in the southern
region of Havana province.

According to the bilateral agreement, petroleum extracted by Sherritt is
purchased by the state oil company Cuba Petroleo (CUPET), though on
occasions it has served to compensate payments by the Cuban government
due to Sherritt's share of nickel and cobalt mining operations on the
island.

The company report notes, however, that recent drops in the price of
nickel and cobalt have negatively impacted the amount of available
Cubanfunds, preventing Sherritt from negotiating debt under previous
market prices.

The dilemma faced by Sherritt -- a pioneer of foreign investments in the
island -- is now shared by Pebercan, as the Cuban government has failed
to make payments to that company since April. By the end of this year,
CUPET will owe $118.9 million to Pebercan, having only paid $2 million
thus far, according to a recent report by the Montreal-based oil company.

The company reports coincide with the announcement of agreements between
the Cuban government and Brazil's state-run oil company Petrobras, a
main topic during Brazilian President Luiz Inácio Lula da Silva's recent
visit to the island-nation.

Earlier this month, CUPET stated that deep-water petroleum reserves
could reach 20 billion barrels. But analysts warn that the Sherritt
report spells bad news for investors.

''Just as Cuba is trying to attract foreign investment for drilling . .
. the revelations of nonpayment to one of its main petroleum partners
doesn't sound encouraging,'' said former petroleum executive Jorge R.
Piñón, currently a researcher with the University of Miami.

http://www.miamiherald.com/news/americas/story/750294.html